BHP Billiton, the world’s largest miner, has posted its 12th-consecutive year of iron ore production increases. But, with investors fretting about growth in China, is the mining sector’s lowly rating deserved?

There is no doubt investors are “risk off” at the moment, as the eurozone crisis couples with a slowing China to take the shine off the mining sector in particular.

China’s growth rate has slowed and it is expected to grow by something like 7pc this year. However, this is from a significantly higher base than it was just a few years ago. In yuan terms the growth in output is likely to exceed last year.

Should a further slowdown occur, there is scope to stimulate demand. The People’s Bank of China’s benchmark interest rate is still at 6pc despite two reductions this year, so more cuts are possible.

Also, the industrialisation of China and other Asian growth nations may slow, but it is not going away. That’s why all global mining groups are pushing through large expansion plans. However, this has only compounded investor fears of a glut of commodities further down the line impacting on prices. In response, some groups have indicated they will put a brake on some growth projects.

BHP is the only major mining group with a June year end – and yesterday saw its end of year production report. Copper and iron ore production were particularly robust.

Annual iron ore production rose by 19pc to 159.5m tonnes and saw a record shipment rate of 179m tonnes to the end of June. Iron ore produced operating profits of about $13.3bn (£8.5bn) last year, compared with the group’s total of $32bn. The outlook for iron is therefore very important for BHP’s future profit - and the price continues to be weak.

There was a marginal increase in production of coal in Queensland, following both floods and industrial action. Oil output increased by 40pc over the year, boosted by acquisition of Petrohawk, as well as assets from Chesapeake Energy. Some analysts have mooted concern that the value of these gas assets will have to be written down because of low natural gas prices in the US, but prices have moved off lows of late.

Investors have been pressuring the company to return cash to shareholders through an increased dividend or via share buy-backs. We shall find out how successful this has been when the group issues its full-year numbers on August 22. Questor thinks investors should not hold their breath.

Next year the company will have to stump up about $20bn to fund its expansion plans. Marius Kloppers, its chief executive, has consistently said that the dividend will be raised in a progressive manner – one which will be sustainable throughout the cycle.

Indeed, some calculations performed yesterday by analysts at Deutsche Bank show just how tight the chances of a larger-than-expected dividend increase are.

The broker increased its capital expenditure forecast for this year to $22bn from $19bn. Adding in a $6.3bn dividend, Deutsche sees total cash outflows of $28.3bn, compared with its operating cashflow forecast of $23.8bn. This means BHP is likely to have to borrow about $5bn to fund its growth plans.

Questor last said buy in mid-June when the shares were at £18. They are now at the same level and the view remains the same. BHP has a balanced set of commodities and the industrialisation theme in emerging markets will continue for many years to come. Once the current crop of expansion plans come on stream, profits are likely to grow significantly. Trading on a 2013 earnings multiple of 8.1 times falling to just 7.5, the shares remain a buy.